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Liontrust UK Growth: June 2020 fund update

Dominic Rowles | Tue 30 June 2020

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Anthony Cross and Julian Fosh are experienced investors who we rate highly
  • They have a robust investment process which has served investors well over the years
  • Long-term returns have been boosted by the managers' astute stock picking
  • This fund has been added to the Wealth Shortlist of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

This fund aims to grow your investment over the long run by investing in a portfolio of companies with unique advantages over the competition. We think it could be a good option for the UK section of a broader global investment portfolio. A focus on high-quality companies means the fund could work well alongside other funds investing in unloved UK companies with recovery potential.

Manager

Anthony Cross and Julian Fosh are joint managers of the Liontrust UK Growth Fund. They've been at Liontrust for 23 and 12 years respectively, but both have three decades of experience analysing and investing in UK companies.

The duo also serve as co-managers on the three other funds, but they all share the same 'Economic Advantage' investment process that underpins this one (described in more detail in the Process section below). Given the similarities in the way the four funds are managed, we think this is a reasonable workload.

The managers also benefit from the support of a knowledgeable team including small cap fund managers Victoria Stevens and Matthew Tonge. They both joined the Economic Advantage team in 2015 but have built up experience working at other firms too.

Process

When a company comes up with a new product or service, they sometimes initially experience a high level of profitability. But as new competitors enter the market and the company is forced to compete by cutting prices, profits get squeezed. The fund managers think the secret to successful investing is to find the few companies with an economic advantage - a durable edge over the competition that will allow them to earn above-average profits for the long-term.

They believe the hardest economic advantages to copy are intellectual property, such as patents and trademarks, strong distribution channels and significant repeat business. That's why a company must have at least one of these attributes before it's considered for the fund. Other less powerful but nonetheless important strengths include franchises and licenses, good customer relationships and a great company culture.

Once companies with a strong competitive edge have been identified, the managers look for proof that it's led to superior financial returns in the past. They also look for evidence of pricing power – the ability to increase prices without affecting demand for the company's product or service.

Finally, they consider the company's valuation. They compare each company's valuation on a variety of measures to try and avoid overpaying. However each investment is made with the long term in mind, so the managers believe the initial price paid is less important to overall returns than the company's ability to grow earnings and profits over the long term.

Recent investments include specialist engineer IMI. The company designs, manufactures and services highly-engineered products that control the precise movement of fluids. Its economic advantage comes from its extensive intellectual property, where it has specialist knowledge in manufacturing valves used in some of the world’s harshest environments, and its strong distribution channels, with operations in over 50 countries.

The managers invest in companies of all sizes, but no more than 10% of the fund will invest in higher-risk smaller ones. They also have the flexibility to invest in derivatives which, if used, adds risk.

Culture

Liontrust gives managers the freedom to manage their own portfolios according to their own investment and market views. The company simply asks managers not to deviate from their investment processes. Each manager's funds are regularly checked by other senior managers at Liontrust to ensure they're staying true to their investment processes.

While Liontrust takes Environmental, Social and Governance (ESG) issues seriously at company-level, this has not yet fed through to all of the company's funds. The Liontrust UK Growth Fund, for instance, doesn't formally integrate ESG analysis and given the managers' flexibility to run their fund in the way they see fit, there's no guarantee it ever will.

We also like that all Liontrust fund managers invest a significant amount of their own money into the funds they run. This helps to align their interests with those of investors.

Cost

The fund has an ongoing charge of 0.89%, making it one of the more expensive UK Growth funds on the Wealth Shortlist. Investors should note a higher fee means the fund manager has a bigger hurdle to deliver future positive returns. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund launched in March 1993 but Cross and Fosh took control and started applying the Economic Advantage investment process from March 2009. Since then, the fund's turned an investment of £10,000 into £37,003*. The broader UK stock market's returned £25,528* over the same time period, although past performance is not a guide to the future.

Our analysis suggests returns were boosted by the managers' ability to invest in companies with outstanding prospects, regardless of their size or what sector they're in. Remember the value of your investments will fall as well as rise, so you could get back less than you invest.

The fund's focus on high quality companies means it has tended to lag the broader stock market when it has risen quickly, but held up better when markets turned negative. That was also the case during the recent stock market turbulence caused by the coronavirus crisis.

The fund significantly outperformed the UK market over the past year too, although investors still lost money.

One of the fund's top performers was global pharmaceutical company AstraZeneca. It recently teamed up with Oxford University to research, manufacture and distribute a potential coronavirus vaccine. The managers think the company's key strengths are its strong distribution channels and intellectual property built up through decades of research and development.

Annual percentage growth
May 15 -
May 16
May 16 -
May 17
May 17 -
May 18
May 18 -
May 19
May 19 -
May 20
Liontrust UK Growth -0.3% 26.7% 8.3% -0.8% -5.5%
FTSE All-Share -6.3% 24.5% 6.5% -3.2% -11.2%

Past performance is not a guide to the future. Source: *Lipper IM to 31/05/2020

Please note this fund invests in Hargreaves Lansdown plc.

More about Liontrust UK Growth, including charges

Liontrust UK Growth Key Investor Information

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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